Your Borrowing Power Has Dropped: What to Do When the Numbers Don't Add Up

If you got a pre-approval before the rate rises started, or ran the numbers on what you could borrow at the start of 2026, I need to tell you something: those numbers are no longer accurate.

Three cash rate increases in 2026 have meaningfully reduced what most Australians can borrow. Not by a small amount. In many cases, by tens of thousands of dollars.

This is one of the most common conversations I am having right now, and I want to give you an honest picture of what has changed and what you can actually do about it.

How Rate Rises Reduce Borrowing Power

Lenders assess your ability to repay a loan using a serviceability test. Under APRA's current requirements, they apply a buffer of 3% above the loan's actual interest rate to make sure you can handle repayments if rates rise further.

When the actual rate goes up, the test rate goes up with it. A borrower who was assessed at 7% plus a 3% buffer (10% test rate) six months ago is now being tested at a higher base with the same buffer applied on top. The loan amount they qualify for falls because their repayments at the test rate are higher relative to their income.

In practical terms: each 0.25% increase from the RBA reduces borrowing capacity by roughly $10,000 to $15,000 depending on your income level. Three rate rises means some borrowers are looking at $30,000 to $45,000 less capacity than they had at the start of the year.

If you were approved for $800,000 in January, you may now qualify for closer to $755,000 at the same income. That is a meaningful gap in any property market.

Your Pre-Approval May No Longer Be Valid

Pre-approvals typically last 90 days. If yours was issued before the rate rises, it was assessed using a lower serviceability rate and may no longer reflect what you can actually borrow.

Even if your pre-approval technically has not expired, lenders reassess at the point of formal application and at settlement. If conditions have changed since your pre-approval was issued, there is a real risk the final approval comes in lower than expected.

My strong advice: if you have a pre-approval that is more than two months old and rates have moved since it was issued, get it reassessed before you start making offers. Finding out at exchange that your approval no longer covers the purchase price is one of the worst positions a buyer can be in.

What Actually Helps

There is no single solution to reduced borrowing capacity, but there are legitimate strategies that can genuinely improve your position.

Clean up your living expenses. Lenders assess declared and visible living expenses as part of serviceability. If your bank statements show high discretionary spending on subscriptions, dining, and lifestyle costs, it can reduce what you are assessed as being able to service. Consistently reducing visible expenses in the three to six months before applying has a documented positive impact on outcomes.

Clear existing debts. Buy now pay later balances, personal loans, and credit card limits all reduce your assessed borrowing capacity, even if you are not actively using them. A $10,000 credit card limit reduces your assessed capacity by more than $50,000 in some lender models. Clearing or reducing these before applying makes a real difference.

Increase your deposit. A larger deposit reduces the loan amount required. It can also move you out of LMI territory, which reduces upfront costs and sometimes opens access to better rates. If you have access to family support or equity in another property as security, that can support a larger purchase without increasing the loan amount.

Check how different lenders assess your income. Not every lender assesses income the same way. Some lenders will include certain income types that others discount or exclude entirely. Overtime, commission, rental income, allowances, and second job income are all treated differently across lenders. Comparing across 35+ lenders is not just about rate. It is about which lender's assessment methodology fits your specific profile.

Consider a guarantor. A family guarantor who uses equity in their own property as additional security can allow you to borrow more without requiring a larger deposit, and can eliminate LMI entirely. This carries real obligations for the guarantor and needs careful structuring, but it is a legitimate path for buyers who are close to where they need to be.

Adjusting Your Strategy

Sometimes the math does not add up for the property you were originally targeting, and the honest thing I can say is that adapting your strategy is a better response than stretching beyond what you can service.

This might mean looking at suburbs one step further out than your first preference. It might mean a smaller property that positions you to build equity rather than one that pushes every limit. It might mean taking 12 more months to reduce debt, save more, and come back to market in a demonstrably stronger position.

These are not failures. They are good decisions. The clients I have seen get into genuine financial difficulty are those who pushed every limit to get into the property they wanted at the time, and then had no buffer when conditions changed.

The clients who have built real wealth through property are typically those who bought within their means, structured their loans properly, and used the equity they built to step up over time. That pattern works in any rate environment.

The Most Important Step Right Now

Do not rely on a number you heard six months ago or calculated on an online tool built for a different rate environment.

Get a proper, current assessment of your borrowing position from someone who can check it across multiple lenders, understand your income structure, and give you an honest read of what you qualify for and what you can realistically buy.

That is the starting point for every good property decision in this market. And it costs you nothing to have that conversation.

Book an initial consultation